New Legislation Could Change Illinois' Estate Tax for Family Farm Operations

Preserving family farms is the focus of two new bills filed with the Illinois General Assembly that seek to update language in the Illinois Estate and Generation-Skipping Transfer Tax Act.

Democratic State Sen. Dave Koehler and State Rep. Sharon Chung last week filed identical pieces of legislation called the Family Farm Preservation Act in the House [4600] and Senate [2921] aimed at raising the exemption for family farm estates from $4 million to $6 million.

At a news conference Wednesday, both lawmakers said the change is meant to reflect the growing divide between farm estate valuations and how much money a farm actually makes. The disparity comes from the valuation of the farm estate that looks at the market price per acre of land — and not the income generated by the land.

About 96% of Illinois farms are family-owned. Data from the Illinois Department of Agriculture puts the estimated average size of farms at around 375 acres, although that figure does include hobby farms.

Farm operations around that size could pull in an income ranging from below or around $100,000 per year. But if that farm becomes an estate due to the death of its owner and operator, it could be taxed up to “almost $5 million,” said Koheler, leaving the remaining family members to figure out how to pay a sudden and large tax bill.

"This is Illinois' number one industry [valued at] $137 billion dollars," Koehler said at the news conference at the Illinois Farm Bureau [IFB] in Bloomington. "What's even more amazing is that this is an industry that's made up of family farm units. Why would we want to risk that being upset by having people have to sell the farm to pay the estate tax?"

The legislation seeks to raise the threshold by $2 million to put it more in line with the federal Real Estate Exemption for small businesses which, while currently much higher at $13.6 million, is expected to drop to $6 million by 2026. Only the dollars above that $6 million figure would be taxed.

The bills also contain provisions for inflation and tie the exemption amount to annual changes in the Consumer Price Index.

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